Risks favor: Floating

Current Price of FNMA 6.0% Bond: $101.31, +16bp

The markets are on the move this morning, partly in response to comments made by New York Fed Vice Chairman Donald Kohn. He said, “In my view, these (financial) uncertainties require flexible and pragmatic policymaking – nimble is the adjective I used a few weeks ago. In the conduct of monetary policy, as Chairman Bernanke has emphasized, we will act as needed to foster both price stability and full employment.'

The markets interpreted the “nimble” comment as confirmation that the Fed will indeed cut rates once again at their December 11th meeting, and both Stocks and Bonds moved higher in response.

In economic report headlines, Durable Goods Orders for October were reported at -0.4%, which was lower than expectations of 0.0%. And when excluding a 16.1% rise in volatile defense spending, Durable Orders actually dropped by -0.9%, due to weakening demand for high tech goods. Overall this was a weak report, and a positive for Bonds.

Existing Home Sales for October dropped 1.2% to a 4.97 million pace, the lowest since 1999. The inventory of unsold homes rose by 1.9% to 4.45 million, representing a 10.8 month supply, the highest since 1999. Additionally, the year-over-year median sales price dropped by 5.1% to $207,800, the largest decline ever recorded. While this is tough news for those seeking to sell their home, the good news for our home buying clients is that there remains a wide selection of homes to choose from at bargain prices, combined with the still very low interest rates we can offer at this time.

At 2:00pm ET today, the Fed will release its “Beige Book” reporting on the current state of the economy. The Beige Book is produced about two weeks ahead of each Fed Meeting, and could be a market mover later today.

Technically, Bond prices have undergone some serious volatility over the past several days. The Bond struggled to hold above support at $101.12 yesterday, and has bounced higher off this level so far today, putting us in a Floating stance for now.